Tabreed has secured up to Dh3.1 billion (US$843.9 million) in new capital as it nears the conclusion of its debt restructuring plan.
Mubadala Development, a strategic investment company owned by the Abu Dhabi Government, will receive an increased stake in the district cooling company based in the capital in exchange for financial support for the firm.
"The board of directors is pleased that Tabreed has successfully entered the final stages of its recapitalisation programme," Khadem al Qubaisi, Tabreed's chairman, said yesterday. Under the agreement Mubadala will convert Dh1.7bn of existing bridge financing provided to the company into subordinated notes that will convert into stock. The notes, which mature in 2019, have a conversion price of about Dh1.13.
Mubadala will also provide a Dh1.4bn subordinated convertible loan that the company will dip into to help keep its business operating until next year.
The loan facility will mature on December 31 next year, by which time the drawn amount will be converted into additional notes, it said.
Mubadala already owns 17 per cent of the company.
Yesterday's announcement paves the way for the completion of the recapitalisation programme by March 31.
The money will be used to help put the firm's business back on a sustainable footing after the property downturn cut its revenues.
"There was an expectation that Mubadala would step in as a white knight but there's no such thing as a free lunch," said Haissam Arabi, the chief executive of Gulfmena Alternative Investments.
"There's a perception among investors of a massive dilution so this will not be taken in a positive way even though this funding is necessary for Tabreed to stay in business."
Tabreed spent billions of dirhams building airconditioning plants but suffered as projects were delayed and scaled back.
Talks over Tabreed's restructuring and recapitalisation started early last year, when its board sought approval from shareholders to seek new terms on debt. It achieved a significant breakthrough last month after it agreed to a Dh4.5bn debt refinancing plan with bank creditors.
The same month it announced annual profits of Dh136.8m for last year following a loss the previous year. The company said it may repurchase a portion of the subordinated notes in the future. They would then be transferable to shareholders and any other interested investors.
Yesterday, the company said it had also launched an amendment process to settle Dh246.5m owed to holders of an Islamic bond, or sukuk. It gives the holders an option to convert their equity into shares on completion of the process on March 31.
"Following the successful completion of the recapitalisation programme, Tabreed will be in a stronger position to deliver on its business plan and achieve its full earnings potential," said Mr al Qubaisi.
"Management's focus will be on completing Tabreed's build-out programme, developing the company's core chilled-water business, and increasing profitability by enhancing value from existing plants while maximising organisational and operational efficiencies."
The company's shares on the Dubai Financial Market closed down 7.9 per cent to 97 fils yesterday.